Banking on long way to redemption

Date: July 10 2014

Adele Ferguson

On Tuesday morning Commonwealth Bank whistleblower Jeff Morris jumped in his car and headed to Canberra for a meeting with the politician at the centre of key decision making on financial planning reforms and a royal commission on the CBA financial planning scandal.

As Morris arrived at Parliament House for his 3.30pm meeting with Finance Minister Mathias Cormann to discuss all things CBA, the opposition was hatching a plan to keep the CBA in the spotlight and entwine it with the government's plans to water down the future of financial advice (FoFA) reforms, amendments that CBA and other banks have lobbied endlessly for.

The CBA scandal has become symbolic of what is wrong in the financial planning industry, specifically the inherent conflicts of planners tied to or working for the banks and the use of sales targets as a key incentive.

The bank proclaims that the scandal happened in the past, was restricted to a few rogue planners, management has changed and systems are more robust. But it would say that.

The case of Noel Stevens, whose rock solid life insurance policy was switched to a CBA policy, which was later rejected when he was diagnosed with terminal cancer and which the bank took to the Court of Appeal and lost, didn't happen at the hands of a rogue planner. Stevens was the victim of vertical integration and the use of sales targets.

There is also scepticism about the bank's compensation scheme, particularly the lack of detail and its structure. Last Thursday CBA boss Ian Narev outlined a plan to reopen its compensation offer to any of its 400,000 customers who feel they might have fallen victim to unscrupulous advice between 2003 and 2012.

The bank is yet to announce who will be appointed to the specialist CBA team reviewing past advice, who will be the ''independent'' consumer advocate, which will be funded by the bank, or who will sit on its ''independent'' panel, which will be set up to determine whether compensation is payable and if so how much.

There is a growing uneasiness that as compulsory superannuation pumps more and more money into the system, more needs to be done than the bank's compensation scheme to fix a flawed system.

The stakes are high for customers, politicians, banks and the financial planning industry. While some financial planners do the right thing by their customers, the CBA scandal illustrates that more needs to be done to reform it and make sure the corporate regulator is on top of its game.

As Senator Cormann has tried to get the CBA financial planning scandal off the front pages in a last ditch effort to stop his FoFA regulations being killed off, the opposition is doing its best to snuff them out.

To this end, the Leader of the Opposition, Bill Shorten, the shadow treasurer, Chris Bowen, and shadow minister for financial services, Bernie Ripoll, held a news conference on Wednesday to announce a ''new'' Senate inquiry into the CBA.

The announcement was designed to pressure Senator Cormann to respond to a set of recommendations to hold a judicial inquiry or a royal commission on the bank.

Senator Cormann has not ruled out a royal commission, but says he prefers to wait and see how the CBA handles the compensation process, which is still being implemented. This is a veiled threat to CBA if there ever was one.

But the brutal reality is a compensation scheme and royal commission don't have to be mutually exclusive.

The opposition's call for a new Senate inquiry into CBA and ASIC is the fallback position if the government decides to kibosh a proper investigation into what went on.

As Opposition Leader Shorten said on Wednesday: ''There was forgery, and dishonest concealment of material facts … there was grievous breach of trust by financial advisers to their customers.''

Labor senator Sam Dastyari wants to get to the bottom of the CBA scandal. His preference is for a royal commission or judicial inquiry, but a Senate inquiry will do.

He says he is prepared to use the Senate powers to subpoena witnesses including former and current senior executives at the bank and financial planners to appear before the inquiry.

If they choose not to show, they will be summonsed, and if they still don't show they will be censured by the Senate - hardly a good look for people who hold themselves out as good corporate citizens.

''The behaviour of the Commonwealth Bank in these matters has been unconscionable and something needs to be done about it,'' Senator Dastyari said.

But he says it isn't just about CBA. ''People have been coming out with stories across the banking sector and so the government should keep itself open to a judicial inquiry,'' he said.

He is right, the CBA financial planning scandal is the tip of a very big iceberg that has been allowed to float into the pathway of ordinary Australians.

For Jeff Morris, who first exposed the scandal to ASIC in October 2008, and who plans to meet CBA chief executive Narev to discuss the compensation scheme, the journey continues.

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